Smart bidding strategies: How to choose when constrained by budget (Part 1 of 2)

We all know that there are smart bidding strategies on Facebook and Google, and they all sound pretty good, don’t they? Well that’s because they are! However there’s a lot of context you would need to factor before selecting a strategy for your next campaign, because it can all make a world of a difference. 

With that in mind, our growth marketing team put together these explanations and insights. It is the first of a two-part series, to help you choose the best smart bidding strategy for your campaigns when you are constrained by budget—based on your desired needs and/or outcomes.

But first, let’s quickly go over some of the basics, to ensure we’re all on the same page.

The inner workings of bidding strategies

In smart bidding strategies, you’re essentially telling specific Google campaigns, or Facebook ad sets, how to manage individual impressions as bidding takes place behind the scenes (in real time) every hundredth of a millisecond.

Of course, everything is programmatic, and whoever bids the highest bid wins the opportunity to present the ad. But here’s the thing though—since it is programmatic, and requires R&D elements, most marketing teams don’t have access to it. The ad networks offer smart bidding strategies, so marketers can tell the networks how to manage their bids, through a relatively simplistic set of strategies. One or two strategies typically get used at a time, but there are four in total. 

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The differences between the smart bidding strategies

Between Facebook and Google, the smart bidding strategies have different names, but they literally are the same in meaning. Tomato tomato. Potato potato. Two strategies are constrained by budget, and two are constrained by business metrics. 

The strategies that are constrained by budget are Maximize Conversions Bidding, and Maximize Conversion Value Bidding. I’ll further elaborate on these in a minute 😉. And the strategies that are constrained by business metrics are Target CPA Bidding, and Target ROAS bidding.

In this post, we will focus on the two strategies that are constrained by budget. 

Part 2 will dive into the strategies constrained by business metrics.

As a side note—regardless of the strategies you opt for, the likelihood of your campaigns being victorious exponentially increases when using predictive marketing technology, alongside the human intelligence of your growth team. 

But to get back to the main point, here’s a quick rundown of the smart bidding strategies (as per Google in these examples) of the strategies that are constrained by budget:

Maximize conversions bidding

This strategy automatically sets bids to help get the most conversions for your campaign while spending your budget. Advanced machine learning elements come in to automatically optimize bids and offer auction-time bidding capabilities that tailor bids for every auction, to help get the cheapest conversions available for your budget.

Because of this, there aren’t any individual keyword bids set by advertisers that would be factored by the ad network. Instead, a CPC bid would be chosen based on the goal of the respective bidding strategy.

While all this is great, there are a few points you would definitely need to be aware of, if you decide to take this approach.

• A daily budget needs to be set for each individual campaign
  Be aware that instead of a shared budget, each campaign using Maximize Conversions would need to have its own assigned daily budget. That is because this strategy will always try and spend the full daily allotted budget per campaign. If you were to mistakenly include campaigns in a shared budget, Maximize Conversions would end up spending the daily budget of the entire shared group.
  
• Conversion tracking needs to be set in place
  It is highly recommended to have conversion tracking set in place, if you choose this strategy. That is because the goal here is to maximize the number of conversions being tracked. By extension, if conversion tracking isn’t enabled, the ad network’s algorithm would be inclined to make far less-optimal choices in finding people that would convert.
• You need to closely monitor CPC
  As your conversions go up, you might notice your spend, or average CPC go up as well. Sure, that makes sense, but bear in mind that increased conversion rates would put you back in square one. What I’m saying is—this approach could work for you if your goal is to get more leads for less $$$. But if you’re tight on budget, you might want to consider another strategy, cause this approach tends to spend more aggressively.
  

Maximize conversion value bidding

This strategy (which is a more advanced version of the prior strategy), allows you to maximize the total conversion value of your campaign within your specified budget, and uses advanced machine learning to automatically optimize and set bids. It also offers auction-time bidding capabilities that tailor bids for each auction. By using your historical performance and evaluating the contextual signals present at auction-time, Maximize conversion value bidding automatically finds an optimal bid for your ad each time it's eligible to appear. 

I know the names of this strategy, and Maximum Conversions are very similar, and to be honest, the approaches are relatively similar too. However, unlike the Maximize Conversions strategy, this one won’t optimize for the maximum number of conversions, but it will optimize for the maximum sum of conversion values as it looks to bring in conversions that will give you the highest return. In a nutshell: quality over quantity. Also, in order for this strategy to work well on Google, a large amount of signals will be needed.

However, just like Maximum Conversions, this approach also has a couple of points you best be aware of beforehand.

• Conversions tracking must be set
  As in the case of Maximum Conversions, this is vital to the success of this approach
  
• Values need to be assigned for each action
  You definitely would want to assign a value for each action. Cause if you don’t, that would end up confusing the algorithm. I mean think about it—the more profitable conversions deserve higher bids than the ones that are less profitable.

Maximize conversions in action

Now that we have the basics covered, let’s dive into how it actually works. We’ll start with the “Maximize conversions” strategy. 

A use case for this is when your pricing sensitivity is low because your products cost about the same, or when you want to manifest as many conversions as possible, without regard to how much it would cost you. Another use case would be when you are optimizing for upper-funnel events, such as conversions (events), registrations, and adding to wishlists.

So let’s say you have five users in the world, and you know how much you are willing to bid for them. Let’s also assume that Google knows how much those users are worth to you (it’s actually an estimate, but let’s assume they know for a fact). Cool? 

Okay, so keep things simple, we’ll assume that the cost for the first user is $1, while it is $2 for the second user. This (as per the chart below) will be the example used for the rest of this post. 

With that in mind, you decided to set a budget of $5, and by selecting that strategy, you’re basically telling the ad network, “Hey, get me the max conversions!”

To that, the ad network will be like, “Okay cool,” and sort the users by their expected costs. You score the first user for $1. Then the second user for $2. Nice—you got two users so far, for $3. But wait, you had set your budget for $5… and the third user would be $3. Getting that third user would mean going over budget!

So far, the cost per conversion is $1.50, and the ROAS is $2 (total user conversion value) divided by $3, which is 66 percent. 

But let’s say that we decide to increase the budget to $12, to buy two more users (highlighted in yellow in the chart below). That’ll get you to a spend of $10 for conversions, and you wouldn’t want to buy the next conversion, because that’ll get into the budget being $15, which is too much in terms of CPA, as it has now increased from $1.50, to $2.50. 

As seen in the expanded chart below, your ROAS would also increase significantly, because the third and fourth users have much higher conversions.

Maximize conversions value in action

Now if you were to take on the “Maximize conversions value” approach with the budget of $12, Google will sort those five users by cost effectiveness, instead of just plain cost. As a result, it would go for the users that have a much higher conversion value for the dollars being spent on them. In this case, the prime users would be users number 3, 4, and 5. The total conversion value is $60, with the ROAS being 500% and the CPA being $4, as you can see highlighted in yellow in the chart below.

So what does all this prove? All the bidding strategies sound really good in theory, but in practice, they each yield very different results. In the second example, you saw that the CPA was higher ($4 vs. $2.50) however the ROAS was much better.

BONUS: An added spin…

Now let’s spice things up, and bring the budget down to $11. 

What does that mean? That means one of the users would have to be skipped over, to not go over budget. Under the “Maximize conversions value” strategy, this means skipping the one that is least effective, which would be user #4. 

So now, since you’re spending $8, you have $3, so you might as well buy users 1 and 2. That’ll make the conversions value $52, with a slightly lower CPA. The ROAS would be a little bit less than 500%, but it’s still pretty darn nice!

Well there you have it. I know, it’s quite a lot of discussion points for you and the rest of the growth team, because there are a lot of variables to consider. But hey, you can always turn to the power and potential of a codeless AI-powered predictive growth platform to lessen the load on the team 😉. 

Stay tuned for part two of this series, where we will go over the strategies that are constrained by business metrics: Target CPA Bidding, and Target ROAS bidding. By the time you are done reading both posts—you’ll have the fundamentals downpat, and a better grasp on how to get the most of which smart bidding strategy to meet your goals.